AUD/USD retargets 0.6500, Dollar melts post-NFP
- AUD/USD bounces strongly to the upper-0.6400s after July’s US NFP.
- The US Dollar loses its shine as traders see a potential Fed rate cut in September.
- The final S&P Global Manufacturing PMI in Australia remained strong in July.
The now widespread recovery in the risk-linked galaxy lends extra oxygen to the Australian Dollar (AUD), sending AUD/USD back to the proximity of the key resistance area around 0.6500 on Friday.
AUD/USD meets support near 0.6400
The pair advances to two-day highs within the 0.6480-0.6490 range, marking a positive end to the week, as it gains strong momentum following the disappointing US Nonfarm Payrolls report for July (+73K jobs).
Meanwhile, the US Dollar (USD) continues to lose momentum as market participants assess the additional cooling of the US labour market, potentially leading to a rate cut by the Fed after the summer break.
Locally, the final S&P Global Manufacturing PMI came in at 51.3 in July, while Producer Prices rose by 0.7% QoQ in Q2 and 3.4% from a year earlier.
What about techs?
Transitory resistance emerges at the 55-day SMA at 0.6504, ahead of the 2025 peak at 0.6625 (July 24) and the November 2024 high at 0.6687 (November 4).
On the downside, initial support comes at the weekly floor at 0.6418 (August 1), prior to the critical 200-day SMA at 0.6391.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.